Alternative Finance in the Western Balkans: Insights from USAID CATALYZE Engines of Growth

4 min readFeb 20, 2024

In the Western Balkans, a region with immense entrepreneurial potential, small and medium-sized enterprises (SMEs) are grappling with a fundamental challenge: accessing adequate financing. Despite their crucial role in economic development, SMEs face barriers that impede their growth and contribution to the broader economy.

The SME financing gap is complex. While traditional financial institutions, like banks, have the resources to serve a large market, their high-cost branch networks, stringent regulations, and focus on established businesses often leave SMEs underserved. Meanwhile, FinTech companies struggle with working capital shortages and struggle to meet demand, and SMEs are often limited by available capital and lack awareness of alternative financing options. Compounding these challenges are an underdeveloped cashless economy in Albania and outdated regulatory frameworks, such as Serbia’s FX Law and Law on banks, which impose strict capital controls, limit cross-border financial transactions, and stifle emerging FinTech.

Enhancing the availability and utilization of a more diverse range of financial instruments, services, and providers, as well as expanding FinTech solutions and local Venture Capital and Private Equity funds, can unlock new sources of capital and support innovative solutions tailored to SME needs while enabling SMEs to meet their full potential.

Alternative financing offers transformative opportunities for Western Balkans’ financial landscape. Photo credit: USAID CATALYZE EoG

Over the past four years, the USAID CATALYZE Engines of Growth (EoG) Activity in the Western Balkans has partnered with 72 financial institutions and 52 business advisory service providers to support 1474 SMEs, 793 of which are owned, led, or managed by women.

CATALYZE EoG strives to bridge the financing gap through alternative financing to promote financial inclusion across the region. The past few years several new FinTech products have been introduced throughout the Western Balkans, many of which have been developed in partnership with organizations like USAID. These products range from e-factoring platforms and SME matchmaking platforms to crowdfunding and crowdinvesting platforms. These innovations play a crucial role in addressing the financing needs of SMEs, providing alternative sources of capital, and promoting financial inclusion across the region.

Operating across six countries in the Western Balkans (Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro, and Serbia), CATALYZE EoG leverages private sector financing to establish alternative financing sources and products, while simultaneously addressing demand side challenges through transfer of technology, knowledge, and expertise; increased access to markets, and enhanced digitalization.

Ksenija Grujic of Finspot, a CATALYZE EoG partner, speaks at a learning event. Photo: USAID CATALYZE EoG

“Considering the growth potential of the factoring market in our region, it is quite high. In the Western Balkan countries, factoring turnover contributes 2% or less to the national GDP. In other European countries it is closer to 10%, which implies a secure opportunity for growth that could result in a four- to five-fold increase.” — Ksenija Grujic, Finspot

Drawing on EoG’s findings from learning events, which included representatives of banking, FinTech and equity industries, accounting and auditing, stock exchange, consultants, and entrepreneurs, as well as representatives of USAID, the following key learnings highlight how the public and private sectors can develop both a supply and demand for alternative financing.

Key Learnings and Recommendations:

  • Blended Financing, coupled with SME education, facilitates the growth of alternative financing sources and products.
  • Digital financial services and FinTech solutions play a crucial role in addressing the financing gap for SMEs, including enhancing efficiency, reducing costs, and improving the credit risk-assessment process.
  • Embedded lending and data-based lending offer SMEs flexible and cost-effective financing alternatives and can better address specific financing requirements of underserved markets, such as W-SMEs.
  • Venture capital and private equity funds act as catalysts for entrepreneurial activities by addressing the funding gap that hinders startups and high-growth companies lacking sufficient collateral or credit history.
  • Regional Collaboration and Market Integration are essential for expanding successful financing solutions across Western Balkan countries.
  • Education is crucial for bridging financial and digital literacy gaps among SMEs, investors, and financial institutions.
  • FinTech companies lack working capital as demand largely exceeds supply. Competition among startup support mechanisms, such as financing and mentorship programs, is low.
  • The Western Balkan alternative investment funds face a shortage of institutional support and struggle to secure access to anchor investors.
  • A holistic approach is needed to strengthen Alternative Investment Funds, encompassing advocacy for regulatory changes and ensuring governmental support.
  • Increasingly, banks are recognizing the need to incorporate collaboration with the FinTech society and support to the startup community into their core strategies.
  • Access to international knowledge and expertise proves crucial for understanding emerging trends in SME financing, adopting innovative tools for processing alternative data of small enterprises, and integrating AI tools into banking and other FIs operations.

To foster accelerated industry development and increased investment in growth-oriented SMEs, EoG stakeholders have identified specific areas where blended finances could have the most significant impact. From implementing analytical bank statement risk assessment tools and introducing embedded financing pilot cases to strengthening crowdfunding platforms like, these initiatives aim to bridge the financing gap, empower SMEs, and foster economic growth in the Western Balkans.

Blended finance initiatives that develop alternative financing alongside supporting regulatory reforms, improved education and investment fund industry growth are key to fostering a thriving entrepreneurial ecosystem in the Western Balkans.